Merrill Lynch posts $1 billion Q3 loss on subprime mortgages

Merrill Lynch & Co. Inc. said today it posted a $2.3 billion net loss in the third quarter, thanks largely to $7.9 billion in write-downs and losses on investments in subprime mortgages and collateralized debt obligations (CDOs).

Those write-downs, which the company conceded were "significantly greater" than the $4.5 billion write-down disclosed in its earnings pre-release, helped send the major stock indexes lower Wednesday.

"In light of difficult credit markets and additional analysis by management during our quarter-end closing process, we re-examined our remaining CDO positions with more conservative assumptions" on the value of underlying collateral, said Stan O'Neal, Merrill Lynch chairman and chief executive officer, in a statement. "The result is a larger write-down of these assets than initially anticipated. We expect market conditions for subprime mortgage-related assets to continue to be uncertain, and we are working to resolve the remaining impact from our positions."

Merrill Lynch said the write-downs and losses were partially offset by strong revenues in global wealth management, equity markets and investment banking.

The write-downs included $1 billion in subprime mortgage-related investments, and $6.9 billion in other asset-backed securities and CDO-related exposure. Merrill Lynch said it's reduced its total subprime mortgage-related exposure by 35 percent from the previous quarter, to $5.7 billion, while total ABS CDO-related exposure dropped 53 percent to $15.2 billion.

The $2.3 billion loss for the quarter compares with a $3 billion profit in the same quarter a year ago. Revenue for the quarter was down 94 percent, to $577 million, compared with $9.8 billion a year earlier and $9.7 billion in the second quarter.

At $2 billion, net earnings for the first nine months of the year were down 61 percent from a year ago. Net revenues for the first nine months declined less sharply -- 23 percent -- to $20 billion.

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